Interim Condensed Consolidated Financial Statements (unaudited)

Transcription

1 Q3 Interim Condensed Consolidated Financial Statements (unaudited) As at and for the nine-month periods ended September 30, 2017 and 2016

2 SNC-Lavalin Group Inc. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) (IN THOUSANDS OF CANADIAN DOLLARS) September 30 December 31 Note ASSETS Current assets Cash and cash equivalents $ 642,325 $ 1,055,484 Restricted cash 21,252 55,577 Trade receivables 1,547, ,983 Contracts in progress 1,670,993 1,188,912 Inventories 125, ,795 Other current financial assets 461, ,725 Other current non-financial assets 434, ,847 Assets of disposal groups classified as held for sale and assets held for sale ,919 6,706 Total current assets 5,056,104 4,190,029 Property and equipment 383, ,333 Capital investments accounted for by the equity method 4 299, ,425 Capital investments accounted for by the cost method 4 46,122 48,325 Goodwill 21 6,228,917 3,268,214 Intangible assets related to business combinations , ,164 Deferred income tax asset 566, ,461 Non-current portion of receivables under service concession arrangements 236, ,847 Other non-current financial assets 44,311 58,523 Other non-current non-financial assets 94,235 62,998 Total assets $ 13,793,070 $ 9,298,319 LIABILITIES AND EQUITY Current liabilities Trade payables $ 2,175,388 $ 1,888,242 Downpayments on contracts 220, ,382 Deferred revenues 844, ,158 Other current financial liabilities 277, ,975 Other current non-financial liabilities 557, ,790 Current portion of provisions 179, ,594 Short-term debt and current portion of long-term debt: Recourse - Revolving Facility 11C 587,329 Recourse - Senior notes of Atkins 11C, 20 92,190 Non-recourse from Capital investments 11C 15,314 21,011 Liabilities of disposal groups classified as held for sale 16 94,916 Total current liabilities 5,044,706 3,962,152 Long-term debt: Recourse 11C 845, ,369 Limited recourse 11C 1,474,218 Non-recourse from Capital investments 11C 292, ,571 Other non-current financial liabilities 11C 12,949 5,928 Non-current portion of provisions 770, ,401 Other non-current non-financial liabilities 11C 48,067 15,846 Deferred income tax liability 204, ,718 Total liabilities 8,692,338 5,401,985 Equity Share capital 9 1,800, ,839 Retained earnings 3,193,206 2,959,366 Other components of equity , ,845 Other components of equity of asset held for sale 10 (1,828) Equity attributable to SNC-Lavalin shareholders 5,102,704 3,873,222 Non-controlling interests (1,972) 23,112 Total equity 5,100,732 3,896,334 Total liabilities and equity $ 13,793,070 $ 9,298,319 See accompanying notes to interim condensed consolidated financial statements. SNC-LAVALIN INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1

3 SNC-Lavalin Group Inc. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30 (IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT NUMBER OF COMMON SHARES) 2017 Equity attributable to SNC-Lavalin shareholders Share Capital Common shares (in thousands) Other components of equity (Note 10) Retained Amount earnings Balance at beginning of the period 150,357 $ 554,839 $ 2,959, ,017 Noncontrolling Noncontrolling Total interests Total equity $ $ 3,873,222 $ 23,112 $ 3,896,334 Net income for the period 329, ,679 1, ,683 Other comprehensive income (loss) for the period 72,012 (249,920) (177,908) 129 (177,779) Total comprehensive income (loss) for the period 401,691 (249,920) 151,771 1, ,904 Dividends declared (Note 8) (130,043) (130,043) (130,043) Dividends declared by subsidiaries to non-controlling interests (854) (854) Stock option compensation Shares issued under stock option plans ,830 (2,188) 8,642 8,642 Acquisition of non-controlling interest (Note 19) (35,759) (35,759) (23,740) (59,499) Shares issued in exchange of subscription receipts (Note 20) 24,880 1,234,732 1,234,732 1,234,732 Additional non-controlling interests arising on acquisition of Atkins (Note 20) (1,623) (1,623) Balance at end of the period 175,462 $ 1,800,401 $ 3,193,206 $ 109,097 $ 5,102,704 $ (1,972) $ 5,100,732 NINE MONTHS ENDED SEPTEMBER 30 (IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT NUMBER OF COMMON SHARES) 2016 Equity attributable to SNC-Lavalin shareholders Share Capital Common shares (in thousands) Other components of equity (Note 10) Retained Amount earnings Balance at beginning of the period 149,772 $ 526,812 $ 2,901, ,013 Total interests Total equity $ $ 3,868,178 $ 35,318 $ 3,903,496 Net income for the period 253, , ,930 Other comprehensive loss for the period (37,648) (251,020) (288,668) (3,160) (291,828) Total comprehensive income (loss) for the period 216,309 (251,020) (34,711) (2,187) (36,898) Dividends declared (Note 8) (117,023) (117,023) (117,023) Dividends declared by subsidiaries to non-controlling interests (8,982) (8,982) Stock option compensation Shares issued under stock option plans ,391 (4,730) 19,661 19,661 Capital contributions by non-controlling interests Balance at end of the period 150,281 $ 551,203 $ 2,996,449 $ 188,993 $ 3,736,645 $ 24,249 $ 3,760,894 See accompanying notes to interim condensed consolidated financial statements. 2 INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SNC-LAVALIN

4 SNC-Lavalin Group Inc. INTERIM CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED) (IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT EARNINGS PER SHARE AND NUMBER OF SHARES) THIRD QUARTER NINE MONTHS ENDED SEPTEMBER 30 Note Revenues from: E&C $ 2,572,483 $ 2,100,591 $ 6,228,968 $ 6,076,601 Capital investments accounted for by the consolidation or cost methods 14,490 21,578 42,585 45,736 Capital investments accounted for by the equity method 45,766 46, , ,359 2,632,739 2,168,540 6,416,882 6,259,696 Direct cost of activities 2,009,835 1,955,807 5,199,351 5,414,259 Gross margin 622, ,733 1,217, ,437 Selling, general and administrative expenses 398, , , ,251 Restructuring costs 5 1,661 11,829 26,792 27,573 Acquisition-related costs and integration costs 20 42,284 1,141 98,919 4,110 Amortization of intangible assets related to business combinations 22 35,403 16,202 65,067 52,272 Gain on disposals of Capital investments 4A (36,675) (42,078) (58,539) Gain from adjustment on disposals of E&C businesses 17 (1,006) Gain on disposal of the head office building 18 (115,101) EBIT (1) 181,259 42, , ,770 Financial expenses 6 44,454 13,047 76,105 44,903 Financial income and net foreign exchange losses (gains) 6 (3,587) (3,172) (8,646) (13,251) Earnings before income taxes 140,392 32, , ,118 Income taxes 39,186 (2,578) 45,441 23,188 Net income for the period $ 101,206 $ 35,202 $ 330,683 $ 254,930 Net income (loss) attributable to: SNC-Lavalin shareholders $ 103,576 $ 43,340 $ 329,679 $ 253,957 Non-controlling interests (2,370) (8,138) 1, Net income for the period $ 101,206 $ 35,202 $ 330,683 $ 254,930 Earnings per share (in $) Basic $ 0.59 $ 0.29 $ 2.08 $ 1.69 Diluted $ 0.59 $ 0.29 $ 2.08 $ 1.69 Weighted average number of outstanding shares (in thousands) 7 Basic 174, , , ,997 Diluted 174, , , ,194 (1) Earnings before interest and income taxes ( EBIT ) See accompanying notes to interim condensed consolidated financial statements. SNC-LAVALIN INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3

5 SNC-Lavalin Group Inc. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) THREE MONTHS ENDED SEPTEMBER 30 (IN THOUSANDS OF CANADIAN DOLLARS) Attributable to Non- Attributable to Non- SNC-Lavalin controlling SNC-Lavalin controlling shareholders interests Total shareholders interests Total $ $ (2,370) $ 101,206 $ 43,340 $ (8,138) $ 35,202 Net income (loss) for the period 103,576 Other comprehensive income (loss): Exchange differences on translating foreign operations (Note 10) (257,014) 105 (256,909) (10,359) 213 (10,146) Available-for-sale financial assets (Note 10) (992) (992) Cash flow hedges (Note 10) (20,583) (20,583) (11,486) (11,486) Share of other comprehensive income of investments accounted for by the equity method (Note 10) 55,228 55, Income taxes (Note 10) (11,948) (11,948) 3,759 3,759 Total of items that will be reclassified subsequently to net income (234,145) 105 (234,040) (19,049) 213 (18,836) Remeasurement on defined benefit plans (Note 10) 85,488 85,488 (25,814) (25,814) Income taxes (Note 10) (14,450) (14,450) 4,411 4,411 Total of items that will not be reclassified subsequently to net income 71,038 71,038 (21,403) (21,403) Total other comprehensive income (loss) for the period (163,107) 105 (163,002) (40,452) 213 (40,239) Total comprehensive income (loss) for the period $ (59,531) $ (2,265) $ (61,796) $ 2,888 $ (7,925) $ (5,037) NINE MONTHS ENDED SEPTEMBER 30 (IN THOUSANDS OF CANADIAN DOLLARS) Attributable to Non- Attributable to Non- SNC-Lavalin controlling SNC-Lavalin controlling shareholders interests Total shareholders interests Total $ $ 1,004 $ 330,683 $ 253,957 $ 973 $ 254,930 Net income for the period 329,679 Other comprehensive income (loss): Exchange differences on translating foreign operations (Note 10) (279,053) 129 (278,924) (222,526) (3,160) (225,686) Available-for-sale financial assets (Note 10) 3,603 3, Cash flow hedges (Note 10) (16,388) (16,388) (32,182) (32,182) Share of other comprehensive income (loss) of investments accounted for by the equity method (Note 10) 54,881 54,881 (5,627) (5,627) Income taxes (Note 10) (12,963) (12,963) 9,116 9,116 Total of items that will be reclassified subsequently to net income (249,920) 129 (249,791) (251,020) (3,160) (254,180) Remeasurement on defined benefit plans (Note 10) 85,535 85,535 (44,153) (44,153) Income taxes (Note 10) (13,523) (13,523) 6,505 6,505 Total of items that will not be reclassified subsequently to net income 72,012 72,012 (37,648) (37,648) Total other comprehensive income (loss) for the period (177,908) 129 (177,779) (288,668) (3,160) (291,828) Total comprehensive income (loss) for the period $ 151,771 $ 1,133 $ 152,904 $ (34,711) $ (2,187) $ (36,898) See accompanying notes to interim condensed consolidated financial statements. 4 INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SNC-LAVALIN

6 SNC-Lavalin Group Inc. INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS OF CANADIAN DOLLARS) THIRD QUARTER NINE MONTHS ENDED SEPTEMBER 30 Note Operating activities Net income for the period $ 101,206 $ 35,202 $ 330,683 $ 254,930 Income taxes paid (19,246) (21,969) (13,237) (50,600) Interest paid from E&C (47,890) (16,928) (77,345) (33,400) Interest paid from Capital investments (9,965) (8,199) (21,622) (23,019) Other reconciling items 11A 68,408 22,153 28,358 (67,057) 92,513 10, ,837 80,854 Net change in non-cash working capital items 11B (435,286) 177,080 (858,888) (215,097) Net cash generated from (used for) operating activities (342,773) 187,339 (612,051) (134,243) Investing activities Acquisition of property and equipment (36,146) (56,541) (89,191) (114,222) Proceeds from disposal of the head office building ,288 Payments for Capital investments (1,018) (11,687) Costs associated to a foreign exchange option 20 (54,134) Recovery associated to a foreign exchange option 20 5,407 Acquisition of Atkins 20 (3,119,414) (3,119,414) Change in restricted cash position 21, ,049 (9,098) Increase in receivables under service concession arrangements (53,506) (50,463) (156,750) (134,048) Recovery of receivables under service concession arrangements 26,998 33,398 87,771 74,121 Decrease in short-term and long-term investments 4,653 23,775 37,810 64,997 Net cash inflow on disposals of Capital investments accounted for by the equity method 4A 23, ,851 Net cash inflow on disposal of a Capital investment accounted for by the consolidation method 4A 89,892 89,892 Other 5,787 (2,153) 10,422 (5,470) Net cash used for investing activities (3,060,440) (52,154) (2,960,580) (33,556) Financing activities Increase in recourse debt - Revolving Facility 11C 1,000,798 1,161,229 4,876 Payment for debt issue costs - Revolving Facility 11C (5,552) (5,552) Repayment of recourse debt - Revolving Facility 11C (404,492) (3,712) (564,923) (4,876) Increase in recourse debt - Term Facility 11C 497, ,940 Payment for debt issue costs - Term Facility 11C (2,615) (2,615) Increase in limited recourse debt 11C 1,500,000 1,500,000 Payment for debt issue costs - limited recourse debt 11C (26,648) (26,648) Repayment of recourse debt of Atkins 11C (406,211) (406,211) Increase in non-recourse debt from Capital investments 11C Repayment of non-recourse debt from Capital investments 11C (2,420) (2,479) (5,969) (6,357) Increase in advances under contract financing arrangements ,426 Repayment of advances under contract financing arrangements (214,280) (380,098) Proceeds from exercise of stock options 1,780 3,968 8,642 19,661 Dividends paid to SNC-Lavalin shareholders 8, 11C (47,892) (39,059) (130,043) (117,023) Proceeds from shares issued in exchange of subscription receipts 20 1,220,790 1,220,790 Amount paid for acquisition of non-controlling interest 19 (28,279) (59,499) Other 11C 11,590 (10,948) 12,001 (10,452) Net cash generated from (used for) financing activities 3,308,789 (265,640) 3,199,142 (441,376) Decrease from exchange differences on translating cash and cash equivalents (9,392) (2,298) (3,277) (7,435) Net decrease in cash and cash equivalents (103,816) (132,753) (376,766) (616,610) Cash and cash equivalents at beginning of period 782,534 1,097,977 1,055,484 1,581,834 Cash and cash equivalents at end of period $ 678,718 $ 965,224 $ 678,718 $ 965,224 Presented on the statement of financial position as follows: Cash and cash equivalents $ 642,325 $ 895,533 $ 642,325 $ 895,533 Assets of disposal groups classified as held for sale and assets held for sale 16 36,393 69,691 36,393 69,691 $ 678,718 $ 965,224 $ 678,718 $ 965,224 See accompanying notes to interim condensed consolidated financial statements. SNC-LAVALIN INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5

7 SNC-Lavalin Group Inc. NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE PAGE 1. DESCRIPTION OF BUSINESS 7 2. BASIS OF PREPARATION 7 3. SEGMENT DISCLOSURES CAPITAL INVESTMENTS RESTRUCTURING COSTS NET FINANCIAL EXPENSES WEIGHTED AVERAGE NUMBER OF OUTSTANDING SHARES DIVIDENDS REDEMPTION OF SHARES OTHER COMPONENTS OF EQUITY STATEMENTS OF CASH FLOWS RELATED PARTY TRANSACTIONS FINANCIAL INSTRUMENTS CONTINGENT LIABILITIES SHORT-TERM DEBT AND LONG-TERM DEBT DISPOSAL GROUPS AND NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE GAIN FROM ADJUSTMENT ON DISPOSALS OF E&C BUSINESSES GAIN ON DISPOSAL OF THE HEAD OFFICE BUILDING ACQUISITION OF NON-CONTROLLING INTEREST WS ATKINS PLC GOODWILL INTANGIBLE ASSETS RELATED TO BUSINESS COMBINATIONS EVENTS AFTER THE REPORTING PERIOD 37 6 NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SNC-LAVALIN

8 SNC-Lavalin Group Inc. Notes to Interim Condensed Consolidated Financial Statements (ALL TABULAR FIGURES IN THOUSANDS OF CANADIAN DOLLARS, UNLESS OTHERWISE INDICATED) (UNAUDITED) 1. DESCRIPTION OF BUSINESS SNC-Lavalin Group Inc. is incorporated under the Canada Business Corporations Act and has its registered office at 455 René-Lévesque Boulevard West, Montreal, Quebec, Canada H2Z 1Z3. SNC-Lavalin Group Inc. is a public company listed on the Toronto Stock Exchange in Canada. Reference to the Company or to SNC-Lavalin means, as the context may require, SNC-Lavalin Group Inc. and all or some of its subsidiaries or joint arrangements, or SNC-Lavalin Group Inc. or one or more of its subsidiaries or joint arrangements. The Company provides consulting and advisory, engineering and construction as well as sustaining capital and operations and maintenance expertise, which together are referred to as E&C, through its network of offices in over 50 countries, and is currently working on projects around the world. SNC-Lavalin also makes select investments that are complementary to its other activities and referred to as Capital investments or Capital in these financial statements. 2. BASIS OF PREPARATION A) BASIS OF PREPARATION The Company s financial statements are presented in Canadian dollars. All values are rounded to the nearest thousand dollars, except where otherwise indicated. These financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting, ( IAS 34 ). The IFRS accounting policies that are set out in Note 2 to the Company s annual audited consolidated financial statements for the year ended December 31, 2016 were consistently applied to all periods presented, except for the new accounting policy adopted in the nine-month period ended September 30, 2017, as described in Note 2D. The preparation of financial statements in conformity with IAS 34 requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant, are disclosed in Note 3 in the Company s annual audited consolidated financial statements for the year ended December 31, 2016 and remained unchanged for the nine-month period ended September 30, 2017, except for the new estimates related to sale and leaseback transactions, as described in Note 2D, notably on fair value. The Company s financial statements have been prepared on the historical cost basis, with the exception of i) certain financial instruments, derivative financial instruments and liabilities for share unit plans, which are measured at fair value; and ii) a defined benefit liability, which is measured as the net total of the present value of the defined benefit obligation minus the fair value of plan assets. Historical cost generally represents the fair value of consideration given in exchange for assets upon initial recognition. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2, Share-based Payment, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2, Inventories, or value in use in IAS 36, Impairment of Assets. These interim condensed consolidated financial statements do not include all of the information required for annual financial statements and should be read in conjunction with the Company s 2016 annual audited consolidated financial statements. These Company s interim condensed consolidated financial statements were authorized for issue by the Board of Directors on November 1, B) CHANGES IN ACCOUNTING POLICIES In the fourth quarter of 2016, the Company changed its measure of profit or loss for its reportable segments, such measure of profit or loss is referred to as the segment EBIT, which now excludes gains (losses) on disposals of E&C businesses and Capital investments, whereas in the past it only excluded disposals of activities that qualified as restructuring. This change in an accounting policy did not have any impact on the Company s financial statements, other than on its segment disclosures, and was made in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. SNC-LAVALIN NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7

9 2. BASIS OF PREPARATION (CONTINUED) In the second quarter of 2017, the Company updated its definition of the segment EBIT, which now excludes the gain on disposal of the head office building (see Note 18). This change in the definition was made to take into consideration a transaction that took place in the second quarter of This change in the definition did not have any impact on the Company s financial statements, other than on its segment disclosures, and was made in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. C) CHANGE IN PRESENTATION In the first quarter of 2017, the Company combined the financial results of its Infrastructure & Construction and Operations & Maintenance sub-segments, which were previously presented separately as additional information of the Infrastructure segment. The combination mainly comes from the disposal of a significant portion of the Operations & Maintenance sub-segment in the fourth quarter of 2016, which decreased the level of activities of the Operations & Maintenance sub-segment. As a result of the combination, comparative figures have been adjusted, with no impact on the Infrastructure segmented results. D) NEW ACCOUNTING POLICY ADOPTED IN THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2017 As a result of the disposal of the Company s head office building in the second quarter of 2017, as detailed in Note 18, the Company adopted a new accounting policy applicable to sale and leaseback transactions, which is as follows: A sale and leaseback transaction involves the sale of an asset by the Company and the leasing back of the same asset from the buyer. Where a sale and leaseback transaction results in a finance lease, any excess of sales proceeds over the carrying amount is not immediately recognized as income by a seller-lessee. Instead, it is deferred and amortized over the lease term. Where a leaseback transaction results in an operating lease: if the sale price of the asset is at fair value, the gain or loss from the sale is recognized immediately in the Company s income statement; if the sale price of the asset is above fair value, the excess over fair value is deferred and amortized over the period for which the asset is expected to be used; and if the sale price of the asset is below fair value, any gain or loss is recognized immediately in the Company s income statement except that, if the loss is compensated for by future lease payments at below market price, it is deferred and amortized in proportion to the lease payments over the period for which the asset is expected to be used. E) AMENDMENTS ADOPTED IN THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2017 The following amendments to existing standards have been adopted by the Company on January 1, 2017: Disclosure Initiative (Amendments to IAS 7, Statement of Cash Flows) require disclosures of information enabling users of financial statements to evaluate changes in liabilities arising from financing activities. Amendments to IFRS 12, Disclosure of Interests in Other Entities, clarify the scope of the standard by specifying that the disclosure requirements in the standard, except for summarized financial information for subsidiaries, joint ventures and associates, apply to an entity s interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities that are classified as held for sale, as held for distribution or as discontinued operations in accordance with IFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations. The adoption of the amendments listed above did not have any impact on the Company s financial statements, other than on its disclosures of the financial information (see Note 11C). F) STANDARDS, AMENDMENTS AND INTERPRETATION ISSUED TO BE ADOPTED AT A LATER DATE The following standards, amendments to standards and an interpretation have been issued and are applicable to the Company for its annual periods beginning on January 1, 2018 and thereafter, with an earlier application permitted: IFRS 9, Financial Instruments, ( IFRS 9 ) covers mainly: i) the classification and measurement of financial assets and financial liabilities; ii) the new impairment model for the recognition of expected credit losses; and iii) the new hedge accounting model. IFRS 15, Revenue from Contracts with Customers, ( IFRS 15 ) outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. It will supersede current revenue recognition guidance including IAS 18, Revenue, IAS 11, Construction Contracts, and related Interpretations. 8 NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SNC-LAVALIN

10 2. BASIS OF PREPARATION (CONTINUED) Amendments to IFRS 15 clarify how to: i) identify a performance obligation in a contract; ii) determine whether a company is a principal or an agent; and iii) determine whether the revenue from granting a license should be recognized at a point in time or over time. In addition, the amendments to IFRS 15 include two additional transition reliefs. Amendments to IFRS 2, Share-based Payment, provide requirements on the accounting for: i) the effects of vesting and nonvesting conditions on the measurement of cash-settled share-based payments; ii) share-based payment transactions with a net settlement feature for withholding tax obligations; and iii) a modification to the terms and conditions of a share-based payment that changes the classification of a transaction from cash-settled to equity-settled. Amendments to IAS 28, Investments in Associates and Joint Ventures, clarify that the election to measure at fair value through profit or loss an investment in an associate or a joint venture that is held by an entity that is a venture capital organisation, or other qualifying entity, is available for each investment in an associate or joint venture on an investment-byinvestment basis, upon initial recognition. IFRIC Interpretation 22, Foreign Currency Transactions and Advance Consideration, clarifies that: i) the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset and deferred income liability; and ii) if there are multiple payments or receipt in advance, a date of transaction is established for each payment or receipt. Transfers of Investment Property (Amendments to IAS 40, Investment Property) state that an entity shall transfer a property to, or from, investment property when, and only when, there is an evidence of a change in use. A change of use occurs if property meets, or ceases to meet, the definition of investment property. A change in management s intentions for the use of a property by itself does not constitute evidence of a change in use. The following standard has been issued and is applicable to the Company for its annual periods beginning on January 1, 2019 and thereafter, with an earlier application permitted for entities that have also adopted IFRS 15: IFRS 16, Leases, provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements of both lessees and lessors. It will supersede IAS 17, Leases, and its associated interpretative guidance. The following amendments to standards have been issued and are applicable to the Company for its annual periods beginning on January 1, 2019 and thereafter, with an earlier application permitted: Prepayment Features with Negative Compensation (Amendments to IFRS 9, Financial Instruments) allow financial assets with a prepayment option that could result in the option s holder receiving compensation for early termination to meet the solely payments of principal and interest condition if specified criteria are met. Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28, Investments in Associates and Joint Ventures) clarify that an entity applies IFRS 9, including its impairment requirements, to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. The Company is currently evaluating the impact of adopting these standards, amendments and interpretation on its financial statements. SNC-LAVALIN NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 9

11 2. BASIS OF PREPARATION (CONTINUED) Considerations for the implementation of IFRS 9 and IFRS 15 IFRS 9 and IFRS 15 are required to be applied for annual reporting periods beginning on or after January 1, SNC-Lavalin will not be early adopting IFRS 9 and IFRS 15. IFRS 9 IFRS 9 is applicable retrospectively in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, subject to certain exemptions and exceptions. In general, the main changes introduced by IFRS 9 are related to classification and measurement of financial assets, the introduction of a new impairment model based on expected credit losses (rather than incurred losses as per IAS 39, Financial Instruments: Recognition and Measurement) and hedge accounting. Although the methodology related to the classification of financial asset will change, the Company expects that most of its financial assets currently classified as loans and receivables and measured at amortized costs (approximately $2.2 billion as at September 30, 2017) will be classified as financial assets subsequently measured at amortized cost. Excluding the potential impact from the change in the impairment model applicable to these financial assets, which is currently being analyzed (see below), the Company does not expect any significant impact on their measurement. Furthermore, the Company had $45.6 million of investments in equity instruments classified as available-for-sale as at September 30, 2017 which will be classified as financial assets subsequently measured at fair value through profit or loss or designated at fair value through other comprehensive income upon transition to IFRS 9. The Company does not expect any significant impact from the classification of its financial liabilities. The Company is currently evaluating the impact of determining the amount of impairment of certain financial assets based on the expected credit loss model. While the Company had approximately $122 million of allowance for doubtful accounts on its trade receivables as at December 31, 2016, most of this allowance was related to commercial reasons, such as balances being disputed or subject to negotiation, rather than credit risk. The Company also has reserves on its contract in progress amounts, but most of these reserves are also due to commercial reasons rather than credit risk. Upon adoption of IFRS 9, the Company expects to apply the exemption from the requirement to restate comparative information. Therefore, differences between the previous carrying amounts and the carrying amounts at the date of initial application, if any, will be recognized in the opening balance of retained earnings or other components of equity, as appropriate, as at January 1, The Company is currently assessing the impact of the change on its financial systems, internal controls and policies and procedures related to the adoption of IFRS 9. IFRS 15 IFRS 15 introduces a 5-step model to revenue recognition on contracts with customers. Such model requires to: 1) identify the contract with the customer; 2) identify the performance obligations related to that contract; 3) determine the transaction price of the contract; 4) allocate such transaction price between the performance obligations; and 5) determine under which method revenue will be recognized. IFRS 15 can be applied using one of the following two methods: retrospectively to each prior reporting period presented in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, or retrospectively with the cumulative effect of initially applying IFRS 15 recognised in retained earnings at the date of initial application (January 1, 2018 for the Company). The Company is currently evaluating the transition methods prescribed under IFRS 15. The Company is currently reviewing its contracts with customers in order to determine the impact of this new standard on its consolidated financial statements. In addition to a change in the accounting for revenue recognition, IFRS 15 is also expected to have an impact on presentation and disclosures, with a potential impact on financial systems and internal controls and policies, which are currently being analyzed by the Company. So far, while the Company is still assessing the potential impact of IFRS 15 on its consolidated financial statements, the following items are expected to result in a difference in the way revenue is being recognized: Change orders and claims Change orders and claims, referred to as contract modifications, are currently recognized as per guidance provided in IAS 11, Construction Contracts. Under such guidance, revenue can be recognized on contract modifications only when certain conditions are met, including the fact that it is probable the customer will approve the modification and the amount of revenue arising from such contract modifications. IFRS 15 also provides guidance on the recognition of revenue on contract modifications, but such guidance is based, among other factors, on the fact that the contract modification is approved and it is highly probable that a significant reversal in the amount of cumulative revenue recognised on such contract modifications will not occur when the uncertainty is subsequently resolved. Given the higher level of probability to be applied under IFRS 15, the Company is currently reviewing its position on contract modifications. 10 NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SNC-LAVALIN

12 2. BASIS OF PREPARATION (CONTINUED) Measure of anticipated revenues and determination of progress Under IFRS 15, the amount of anticipated revenue used when determining the amount of revenue to be recognized over time must be based on contracts with legally enforceable rights and obligations. As a result, certain contracts under which the Company anticipates some volume of work based on discussions with the customer or other indicators, but for which formal purchase orders or work orders need to be issued by the customer in order to formalize the exact scope of work, are being assessed to determine when the anticipated revenue should be included in the transaction price. Furthermore, for projects having revenue recognized based on the stage of completion method using a cost input method, the Company currently accounts for its assurance-type warranty costs the same way as other project costs. As a result, the Company does not carry a provision for such expected warranty costs. Rather, it recognizes such costs as they are incurred, which in turns contributes to the progress of the project based on the stage of completion method and, as such, generates revenue. Under IFRS 15, these warranty-related costs are to be excluded from the measure of progress of projects for which revenue is recognized over time using a cost input method. The Company will accrue a provision for these anticipated costs over the advancement of the projects and will then either use such provision when costs are incurred or reverse it if not needed. In addition to these warranty-related costs, the Company is currently reviewing its project costs on contracts for which revenue is recognized over time to determine if each of these costs is contributing to the transfer of control of the goods or services to the customer. The exclusion of certain project costs from the determination of progress will either increase or decrease revenue being recognized on a project, without any impact on the total revenue and costs to be recognized over the life of the project. SNC-LAVALIN NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 11

13 3. SEGMENT DISCLOSURES The following table presents revenues and EBIT according to the Company s segments for the three-month periods ended September 30, 2017 and 2016: THREE MONTHS ENDED SEPTEMBER (1) SEGMENT EBIT SEGMENT EBIT REVENUES E&C CAPITAL TOTAL REVENUES E&C CAPITAL TOTAL Mining & Metallurgy $ 106,957 $ 1,300 $ $ 1,300 $ 74,928 $ 11,571 $ $ 11,571 Oil & Gas (2) 844,546 61,580 61, ,973 (28,067) (28,067) Power 312,971 8,572 8, ,273 23,068 23,068 Infrastructure 502,687 53,699 53, ,417 46,187 46,187 Atkins 805,322 73,455 73,455 Total E&C segments 2,572, , ,606 2,100,591 52,759 52,759 Capital 60,256 60,768 60,768 67,949 52,574 52,574 $ 2,632, ,374 $ 2,168, ,333 Reversal of non-controlling interests before income taxes included above (2,370) (2,370) (8,145) (8,145) Corporate selling, general and administrative expenses and others not allocated to the segments (26,020) (7,052) (33,072) (18,984) (6,533) (25,517) Restructuring costs (Note 5) (1,661) (1,661) (11,829) (11,829) Acquisition-related costs and integration costs (Note 20) (42,284) (42,284) (1,141) (1,141) Amortization of intangible assets related to business combinations (35,403) (35,403) (16,202) (16,202) Gain on disposals of Capital investments (Note 4A) 36,675 36,675 EBIT 90,868 90, ,259 (3,542) 46,041 42,499 Net financial expenses (Note 6) 38,268 2,599 40,867 6,323 3,552 9,875 Earnings (loss) before income taxes 52,600 87, ,392 (9,865) 42,489 32,624 Income taxes 25,945 13,241 39,186 (2,415) (163) (2,578) Net income (loss) for the period $ 26,655 $ 74,551 $ 101,206 $ (7,450) $ 42,652 $ 35,202 Net income (loss) attributable to: SNC-Lavalin shareholders $ 103,576 $ 43,340 Non-controlling interests (2,370) (8,138) Net income for the period $ 101,206 $ 35,202 (1) (2) Comparative figures have been revised to reflect a change made to the measure of profit or loss for the Company's reportable segments (see Note 2B) and a change made to the Company's reporting of its financial results related to the Infrastructure segment (see Note 2C). For the third quarter of 2016, the negative segment EBIT of $28.1 million was mainly due to unfavourable cost and revenue reforecasts on two Oil & Gas projects in the Middle East, which were under the same contract, that had an adverse impact of $116.7 million on gross margin in the third quarter of 2016, and were partly offset by favourable reforecasts on certain other major projects. 12 NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SNC-LAVALIN

14 3. SEGMENT DISCLOSURES (CONTINUED) The following table presents revenues and EBIT according to the Company s segments for the nine-month periods ended September 30, 2017 and 2016: NINE MONTHS ENDED SEPTEMBER (1) SEGMENT EBIT SEGMENT EBIT REVENUES E&C CAPITAL TOTAL REVENUES E&C CAPITAL TOTAL Mining & Metallurgy $ 303,195 $ 15,457 $ $ 15,457 $ 284,535 $ 32,455 $ $ 32,455 Oil & Gas (2) 2,508, , ,584 2,721,462 85,464 85,464 Power 1,053,068 84,077 84,077 1,210,717 80,952 80,952 Infrastructure 1,559, , ,056 1,859, , ,902 Atkins 805,322 73,455 73,455 Total E&C segments 6,228, , ,629 6,076, , ,773 Capital 187, , , , , ,749 $ 6,416, ,361 $ 6,259, ,522 Reversal of non-controlling interests before income taxes included above 1,004 1, Corporate selling, general and administrative expenses and others not allocated to the segments (109,990) (21,199) (131,189) (102,674) (18,633) (121,307) Restructuring costs (Note 5) (26,792) (26,792) (27,573) (27,573) Acquisition-related costs and integration costs (Note 20) (98,919) (98,919) (4,110) (4,110) Amortization of intangible assets related to business combinations (Note 22) (65,067) (65,067) (52,272) (52,272) Gain on disposals of Capital investments (Note 4A) 42,078 42,078 58,539 58,539 Gain from adjustment on disposals of E&C businesses (Note 17) 1,006 1,006 Gain on disposal of the head office building (Note 18) 115, ,101 EBIT 250, , , , , ,770 Net financial expenses (Note 6) 58,795 8,664 67,459 21,076 10,576 31,652 Earnings before income taxes 192, , ,124 99, , ,118 Income taxes 29,456 15,985 45,441 13,285 9,903 23,188 Net income 162, ,962 $ 330,683 $ 85,754 $ 169,176 $ 254,930 Net income attributable to: SNC-Lavalin shareholders $ 329,679 $ 253,957 Non-controlling interests 1, Net income $ 330,683 $ 254,930 (1) (2) Comparative figures have been revised to reflect a change made to the measure of profit or loss for the Company's reportable segments (see Note 2B) and a change made to the Company's reporting of its financial results related to the Infrastructure segment (see Note 2C). For the first nine months of 2016, the decrease of the segment EBIT was primarily attributable to unfavourable cost and revenue reforecasts on two Oil & Gas projects in the Middle East, which were under the same contract, partially offset by favourable reforecasts on certain other major projects. SNC-LAVALIN NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 13

15 3. SEGMENT DISCLOSURES (CONTINUED) The Company also discloses in the table below under Supplementary Information its net income from E&C, its dividends from 407 International Inc. ( Highway 407 ETR ), and its net income from other Capital investments, as this information may be useful in assessing the Company s value. It should be noted that supplementary information provided in the following table does not reflect information related to the Company s segments, but is rather an allocation of net income attributable to SNC-Lavalin shareholders between various components. THIRD QUARTER NINE MONTHS ENDED SEPTEMBER Supplementary information: Net gain from adjustment on disposals of E&C businesses (Note 17) $ $ $ 857 $ Net gain on disposal of the head office building (Note 18) 101,531 Excluding the items listed above 29, ,330 84,781 Net income attributable to SNC-Lavalin shareholders from E&C 29, ,718 84,781 Net gain on disposals of Capital investments (Note 4A) 26,469 31,872 51,045 Highway 407 ETR dividends 36,066 34, ,671 97,710 Excluding the items listed above 12,016 7,845 30,418 20,421 Net income attributable to SNC-Lavalin shareholders from Capital 74,551 42, , ,176 Net income attributable to SNC-Lavalin shareholders for the period $ 103,576 $ 43,340 $ 329,679 $ 253, NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SNC-LAVALIN

16 4. CAPITAL INVESTMENTS SNC-Lavalin makes investments in infrastructure concessions for public services such as airports, bridges, cultural and public service buildings, highways, mass transit systems, power facilities, energy infrastructure and water treatment plants. The main concessions and public-private partnerships contracts reported under IFRIC Interpretation 12, Service Concession Arrangements, ( IFRIC 12 ) are all accounted for under the financial asset model. The Société d Exploitation de l Aéroport de Mayotte S.A.S. concession was accounted for under the bifurcated model and was disposed of in the fourth quarter of The Rayalseema Expressway Private Limited ( Rayalseema ) concession was accounted for under the intangible asset model and was disposed of in the first quarter of 2016, as described below. In order to provide the reader of the financial statements with a better understanding of the financial position and results of operations of its Capital investments, the Company presents certain distinct financial information related specifically to its Capital investments throughout its financial statements, as well as additional information below. A) VARIATIONS IN OWNERSHIP INTERESTS IN INVESTMENTS I) IN THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2017 SNC-LAVALIN INFRASTRUCTURE PARTNERS LP On June 30, 2017, SNC-Lavalin announced the launch of SNC-Lavalin Infrastructure Partners LP (the Partnership ), established to efficiently redeploy capital back into development opportunities, and entered into a strategic agreement with a Canadian subsidiary of BBGI SICAV S.A. ( BBGI ). This Partnership would hold 100% of SNC-Lavalin s interests in a selection of its mature Canadian infrastructure assets and their holding companies. On September 28, 2017, BBGI subscribed to units of the Partnership in an amount equal to 80% of the value of the following four assets: Okanagan Lake Concession Limited Partnership ( Okanagan ), InTransit BC Limited Partnership ( InTransit ), Chinook Roads Partnership ( Chinook ) and Rainbow Hospital Partnership ( Rainbow ) and contemporaneously SNC-Lavalin transferred to the Partnership all of its ownership in the four assets. A fifth asset, McGill Healthcare Infrastructure Group, G.P. ( MHIG ), is currently expected to be transferred to the Partnership at the end of 2017 (see Note 16). Net gain on partial disposal of the Partnership NINE MONTHS ENDED SEPTEMBER Consideration received $ 98,774 Net assets disposed of (48,682) Cumulative share of other comprehensive loss of investments accounted for by the equity method reclassified from equity (30,977) Carrying amount of the investment retained in the Partnership 9,736 Gain attributable to measuring the investment retained in the Partnership at its fair value 14,957 Disposition-related costs (7,133) Gain on partial disposal of the Partnership Income taxes Net gain on partial disposal of the Partnership $ 36,675 (10,206) 26,469 On September 28, 2017, excluding the BBGI s subscription, major classes of assets and liabilities of the Partnership were as follows: SEPTEMBER Cash and cash equivalents $ 8,882 Restricted cash 3,347 Other current assets 11,104 Capital investments accounted for by the equity method 27,812 Other non-current assets 215,417 Assets disposed of 266,562 Current liabilities 44,622 Non-current liabilities 173,258 Liabilities disposed of 217,880 Net assets disposed of $ 48,682 SNC-LAVALIN NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 15

17 4. CAPITAL INVESTMENTS (CONTINUED) Net cash inflow on partial disposal of the Partnership NINE MONTHS ENDED SEPTEMBER Consideration received in cash Less: cash and cash equivalents balances disposed of Net cash inflow on partial disposal of the Partnership MCGILL HEALTHCARE INFRASTRUCTURE GROUP On June 30, 2017, the joint venture McGill Healthcare Infrastructure Group, in which SNC-Lavalin previously held a 60% ownership interest, issued equity instruments to the other investor in MHIG, which resulted in a dilution of SNC-Lavalin s ownership interest to 50%. In addition, the Company s subordinated loan receivable from MHIG of $109.3 million (the Subordinated Loan ) was partially sold to the other investor in MHIG and was partially reimbursed by MHIG for a total cash consideration of $23.3 million. Gain on equity transaction of MHIG Gain on Subordinated Loan transaction For the nine-month period ended September 30, 2017, the gain on partial disposal of MHIG is presented in the Company s consolidated income statement as follows: NINE MONTHS ENDED SEPTEMBER Gain on equity transaction of MHIG $ 2,572 Gain on Subordinated Loan transaction 2,831 Gain on partial disposal of MHIG $ 5,403 II) IN THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2016 MALTA INTERNATIONAL AIRPORT 98,774 (8,882) 89,892 NINE MONTHS ENDED SEPTEMBER SNC-Lavalin's share of the contribution by the other investor in MHIG Cost of deemed disposal of 10% of ownership interest in MHIG Gain before income taxes Income taxes Net gain on equity transaction of MHIG On March 30, 2016, SNC-Lavalin announced that it has reached financial close on the sale of its indirect ownership interest in MML Holdings Malta Limited [formerly, SNC-Lavalin (Malta) Limited ( SNCL Malta )] to an affiliate of Flughafen Wien AG for total cash consideration of approximately 64 million (approximately CA$98.7 million). SNCL Malta was the indirect owner of the Company s 15.5% ownership interest in Malta International Airport p.l.c. Net gain on disposal of SNCL Malta 16 NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SNC-LAVALIN $ $ $ $ 5,052 (2,480) 2,572 2,572 NINE MONTHS ENDED SEPTEMBER Consideration received Carrying amount of the Subordinated Loan sold to the other investor Carrying amount of the reimbursed Subordinated Loan Gain before income taxes Income taxes Net gain on Subordinated Loan transaction $ $ 23,270 (18,218) (2,221) 2,831 2,831 NINE MONTHS ENDED SEPTEMBER Consideration received Carrying amount of the investment Cumulative exchange gain on translating foreign operations reclassified from equity Gain on disposal of SNCL Malta Income taxes Net gain on disposal of SNCL Malta $ $ 98,675 (38,660) 1,074 61,089 (7,494) 53,595

18 4. CAPITAL INVESTMENTS (CONTINUED) Net cash inflow on disposal of SNCL Malta NINE MONTHS ENDED SEPTEMBER Consideration received in cash Less: cash and cash equivalents balances disposed of Net cash inflow on disposal of SNCL Malta RAYALSEEMA In 2016, SNC-Lavalin completed the sale of its ownership interest of 36.9% in Rayalseema in exchange of total cash consideration of approximately US$6 million (approximately CA$8 million). The net loss on disposal of SNC-Lavalin s ownership interest in Rayalseema amounted to $2.6 million. Gain on disposals of Capital investments The gain on disposals of SNCL Malta and Rayalseema is presented as follows in the Company s consolidated income statement: NINE MONTHS ENDED SEPTEMBER $ $ 98,675 (4,865) 93,810 BEFORE TAXES INCOME TAXES NET OF TAXES Gain on disposal of SNCL Malta $ 61,089 $ (7,494) $ 53,595 Loss on disposal of Rayalseema (2,550) (2,550) Gain on disposals of Capital investments $ 58,539 $ (7,494) $ 51,045 Net cash inflow on disposals of Capital investments Following the disposal of SNCL Malta and Rayalseema in the nine-month period ended September 30, 2016, the net cash inflow on disposals of Capital investments accounted for by the equity method presented in the Company s consolidated statement of cash flows is as follows: NINE MONTHS ENDED SEPTEMBER Net cash inflow on disposal of SNCL Malta $ 93,810 Cash inflow on disposal of Rayalseema 8,041 Net cash inflow on disposals of Capital investments accounted for by the equity method $ 101,851 B) NET BOOK VALUE OF CAPITAL INVESTMENTS The Company s consolidated statement of financial position includes the following net assets (liabilities) from its consolidated Capital investments and net book value from its Capital investments accounted for by the equity and cost methods. SEPTEMBER 30 DECEMBER Net liabilities from Capital investments accounted for by the consolidation method $ (58,376) $ (31,231) (1), (2), (3) Net book value of Capital investments accounted for by the equity method 299, ,425 Net book value of Capital investments accounted for by the cost method 46,122 48,325 Total net book value of Capital investments $ 287,672 $ 416,519 (1) (2) Includes the Company s investment in Highway 407 ETR, for which the net book value was $nil as at September 30, 2017 and December 31, Includes the Company s subordinated loan receivable from MHIG of $nil as at September 30, 2017 and $109.3 million as at December 31, 2016 (see Note 4A). (3) Excludes the Company s investment in MHIG, which is included in the Assets of disposal groups classified as held for sale and assets held for sale in the Company s consolidated statement of financial position, as at September 30, 2017 (December 31, 2016: TC Dôme S.A.S.). In 2016, SNC-Lavalin signed an agreement to support a commitment of US$100 million to a fund focused on global infrastructure investments sponsored by The Carlyle Group ( Carlyle ), subject to certain conditions. The intent of this agreement is for SNC-Lavalin and Carlyle to cooperate with respect to investments in, and work on, infrastructure projects related to energy, power and other natural resources that include a significant amount of greenfield development, construction or other capital expenditures programs. As at September 30, 2017 and December 31, 2016, no liability was recorded in relation to this agreement as the conditions have not been met yet. SNC-LAVALIN NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 17